Published December 11, 2012
The U.S. Chamber of Commerce is asking federal officials to consider whether a proposed proprietary trading ban undermines U.S. trade policy, part of an ongoing effort by industry groups to push back against the so-called Volcker rule.
The controversial rule, which is required by the 2010 Dodd-Frank Wall Street reform law, would block banks from making speculative trades with their own money. It was named for former Federal Reserve Chairman Paul Volcker, who pushed for the ban.
In a letter dated Monday, the powerful business lobbying group called for U.S. Trade Representative(USTR) Ron Kirk to review the proposed Volcker rule, which has yet to be finalized by federal banking and financial market regulators.
The chamber said the rule could violate free trade obligations because foreign sovereign debt would be covered by the new rule, while U.S. government bonds are exempt.
"The Volcker Rule's discriminatory provision certainly does, at a minimum, send the wrong message internationally and gravely complicates the long-standing U.S. goal of liberalizing trade in financial services," the chamber said in the letter.
Business groups, Republicans in Congress and others have been ramping up criticism of the rule in an attempt to influence financial regulators as they hammer out its final details.
It is unclear whether the trade office would undertake the chamber's requested review of a proposed rule. A USTR spokeswoman said the office is reviewing the letter.
Even if the request is declined, critiques of the rule by the chamber and others could form the basis of legal challenges against the regulation once the final version is in place.
The chamber has developed a successful track record of challenging financial regulations. Last year, the chamber and the Business Roundtable won a lawsuit overturning a Securities and Exchange Commission rule that made it easier for shareholders to nominate directors to corporate boards.
Bank critics blame proprietary trading for exacerbating the 2007-2009 financial crisis. The Volcker rule is intended to curb such risk-taking by banks with government backstops such as deposit insurance.
Industry groups counter that the rule would cramp liquidity and could hamper parts of the business that are not as risky.
Some foreign regulators have argued that the rules could discourage banks from trading their sovereign debt, making it harder for some nations to borrow.
The chamber said in its letter that the Volcker rule could prompt foreign governments to retaliate and asked the trade office to help financial regulators "understand the costs to the American economy" of the rule.
A former U.S. Treasury official said he doubted USTR would give the chamber any ammunition to use against the Volcker rule.
"USTR won't touch the Volcker rule with a barge pole," said Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics. He said trade rules are vague enough that the United States has "wiggle room" in this area.
The Federal Reserve, Federal Deposit Insurance Corp, Office of the Comptroller of the Currency, Securities and Exchange Commission and Commodity Futures Trading Commission have not released a final draft of the rule and could still make changes based on comments from foreign regulators and others.
Senator Carl Levin, a Michigan Democrat who co-wrote the Volcker rule provision in Dodd-Frank, said on Tuesday that the chamber's letter was part of an attempt to undermine efforts to stabilize the financial system and prevent future crises.
"The chamber's letter places the interests of foreign governments ahead of protecting U.S. taxpayers and workers who had to bail out big banks' bad bets just a few years ago," Levin said in a statement.
Business groups, including the chamber, are expected to air arguments against the Volcker rule during a hearing on Thursday in the Republican-controlled House of Representatives.
(Reporting By Emily Stephenson and Doug Palmer; editing by Andrew Hay)